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Bulgarian Employment Strategy 2004 - 2010
Bulgarian Employment Strategy 2004 - 2010
Bulgarian Employment Strategy 2004 - 2010

EMPLOYMENT STRATEGY 2004 - 2010
/adopted by the Council of Ministers on 6.11.2003/

Sofia, 2003


INTRODUCTION

The employment strategy is an essential document setting the tasks and channeling the efforts of the government institutions, employer organizations, trade unions, non-government organizations, etc. towards enhancing the labor force participation and labor potential of the population. The implementation of this goal is a milestone on the road to achieving the major objective in the economic development of the country, namely – improving the welfare of all social groups.

The developed strategy is harmonized with the main regulatory documents and the studies on employment, education and vocational training: Labor Code, Social Insurance Code, Employment Promotion Act, Act on Public Education, Act on Vocational Education and Training, National Employment Action Plan, National Plan for the Economic Development of the Republic of Bulgaria for the period 2000–2006 and its Operational Program for Human Resource Development, Joint Report on the Assessment of Employment Priorities in the Republic of Bulgaria (2002), National Strategy for Equal Opportunities for the Physically Disadvantaged, etc. The strategy was prepared taking into consideration the priorities in the development of the Single EU Labor Market that were set in the European Employment Strategy and the new dimensions for employment development adopted in Thessalonica in June 2003, as well as the Global Employment Agenda of the ILO.
The Employment strategy covers and supplements the best practices of the employment policies applied during the period of transition to market economy, it establishes objectives, priorities and activities that will be implemented in compliance with the macroeconomic framework adopted in the National Plan for Economic Development. The attainment of the Employment Strategy goals with respect to human resources will enable the realization of the planned economic development parameters.

Subject of the strategy is employment as social status of the individual that depends on both external conditions and the individual him/ herself. The strategy envisions ensuring employment not only as part of the market process (labor force supply and demand), but also in the form of guaranteeing high quality employment (with respect to income, sustainability, compliance, etc). Thus the developed employment strategy is a document that is more general than a labor market strategy would be, since it is not restricted only to the functioning of the labor market. Meanwhile, it does not cover all areas of labor relations, freedom and protection of labor, health and safety at work, social insurance relations and the issues of the living standard.
The employment strategy defines the path for achieving the goals of the European Employment Strategy in Bulgaria, namely – ensuring full employment, quality and productivity of labor, social cohesion and an inclusive labor market. Against the background of the Bulgarian conditions, these goals imply a significant increase of employment and unemployment reduction, as well as better quality of employment.

In the strategy unemployment restriction and ensuring employment for as many people as possible is not a means in itself, it is necessary to provide individuals with jobs that are most appropriate for them and correspond to their needs (nature of labor, income, labor conditions, etc.) and are also productive enough for the enterprises’ needs. The ILO defines the rewarding job as a combination of employment correspondent to the professional qualifications and interests of the individual, ensures social protection, social dialogue on the employment issues and individual satisfaction of the job one has.

The strategy regards employment rise as a result of enhancing the adaptability and competitiveness of enterprises and increasing the demand for labor on the one hand, and improving employability and access to the labor market, on the other.

The strategy covers the period 2004-2010, and defines mid –term (for the period from 2004 till the beginning of 2007) and long-term (until 2010) actions and priorities.

The implementation of an employment strategy is a continuous process that is supervised through a system of indicators for monitoring and assessing the degree to which the goals are fulfilled.

This strategy will serve as a basis for the development of the National Employment Action Plan on an annual basis, as well as for designing projects funded by the pre-accession and structural funds of the EU and other international organizations and donors.

The Employment strategy provides an anticipatory vision with respect to the future amendments to the legal framework and the work of the government institutions and other organizations, it is a document that consolidates the different intentions and contributes to their channeling and synergism on the road to Bulgaria’s EU accession and to 2010 in relation to the implementation of the objectives established in Lisbon in 2000. Thus the employment strategy plays a key role for the harmonization of separate regulatory documents and programs in this area.

The strategy is structured in four main parts.

The first part contains an analysis of the current labor market situation. Against this background it outlines the challenges that will define the trends in employment and human resource development policy until 2010.

The second part presents an overview of the strategic goals and sub-goals for the labor market development and formulates the main dimensions for taking measures and actions in order to attain these goals. The separate dimensions are discussed in detail in the third part. The last part focuses on the necessary prerequisites for the implementation and evaluation of the strategy: enhancing and developing the institutional capacity necessary for the implementation of the strategy; funding and a system for monitoring.

1. CURRENT SITUATION, TRENDS AND CHALLENGES IN THE LABOR MARKET DEVELOPMENT


1.1. Macroeconomic framework

The Bulgarian transition from a centralized economy to a market oriented one started in 1990. The period between 1990 and 1996 characterized with non-consistent changes and almost constant decline in the real income, employment rate reduction and relatively high inflation. As a result, in the second half of 1996 and the beginning of 1997 Bulgaria found itself on the verge of a severe financial and economic crisis that brought to the fore the need for speeding up the reforms.

1997 marked the beginning of the implementation of urgent measures aimed at stabilizing the macroeconomic situation in the country. A currency board was introduced and the fiscal policy was tightened to influence the dynamics of the economic processes in the country. The Government interference in the country’s economy was restricted and the process of liberalizing the pricing system continued. The privatization processes were sped up, both in the real and the banking sector. The annual growth rate of the GDP gradually increased and in 2000 and 2001 it reached some of the highest levels for the transition economies – 5.4% and 4%. In 2002 the growth rate was 4.8%. The high growth rate of the GDP is preserved in 2003 and the main engine of growth is the increased domestic demand.

Despite all this, the level of accumulated investments in the country – both domestic and foreign, remains low, which directly affects the capital adequacy of the economy and the job creation processes.

In the future the attraction of new foreign investments will be key for maintaining the growth rate of the Bulgarian economy. The past few years were marked with increasing foreign investors’ interest in the Bulgarian economy, which directly influenced employment.

As a result of the volatile economic development, an unfavorable age structure of the long-term assets in production was established, the development of the regional structures (transportation, communications, housing, etc.) started lagging behind, the production sectors were developed without introducing the necessary energy- and resource-saving technologies.

The sectors that contribute most to the growth in GDP are the industry and services.

Construction and production and supply of electricity, gas and water are the two branches of the industrial sector that display constant growth. The enterprises from the processing industry failed to recover successfully from the 1996 crisis and continued their volatile development over the following years. This was due predominantly to their continuing restructuring and the number of crises in 1999 that were external for the Bulgarian economy. Since 2000 however, the processing industry started reporting high growth rates of the GVA (10.9% for 2000 and 5.6% for 2001) and is now among the sectors with the highest contribution for the economic growth.

The most dynamic branch in the service sector is communications, which managed to almost triple the income streams over 4 years. Almost all other service sectors (except transportation) report stable, though lower, growth rates.

The only major economic sector with fluctuating development rates is agriculture. It should be pointed out that the fluctuations are due to the underdeveloped land market in Bulgaria, as well as scarce investments. The commercial banks give restricted number of loans to the agricultural high-risk projects, and in addition, the entrepreneurial awareness in this sector is still very low.
One of the main indicators of the attained macroeconomic stability in the country is the lowered annual inflation rate that dropped below 10%. The annual inflation rate at the end of 2002 based on the consumer price index is 3.8%. This was the lowest inflation rate for the past four years.

A main factor contributing to the stability of the currency board in the country is the implemented fiscal policy. The reforms in the area of taxation continue with the objective to improve the business environment in the country and gradually harmonize the Bulgarian with the EU legislation.

Over the past few years the increase of the average salary in Bulgaria has been smaller than the growth in labor productivity (see chart 1 in the Appendix). This factor restricts the domestic consumption and creates unfavorable conditions for the reproduction of the workforce, despite the fact that from a short-term perspective the lower labor cost seems profitable for the employers.

1.2 Current situation and trends for labor market development


1.2.1. Demographic trends and their impact over the workforce number and composition

During the transition period, the population of Bulgaria constantly decreases and data from the last census from March 1, 2001 indicates that the number of the population is 7 932 984. According to data from the National Statistical Institute at the end of 2002 the population of Bulgaria is 7 845 499, i.e. 45 596 persons less than in 2001.
The development of the country’s population corresponds to the trends over the past 30 years of a dropping birth rate and an increasing death rate. Another reason for the demographic slump in addition to the negative natural growth of the population is the migration process. Besides the significant constant and temporary emigration after the first years of the transition period in Bulgaria, there are also significant migration processes within the country (in the 1990s the North Central and the Northeastern regions are affected most by the migration to other regions within the country which led to their depopulation and deterioration of the age structure).
These unfavorable trends affect and will continue to affect the absolute number and structure of the labor force in Bulgaria. There is a continuous trend of decreasing number of the population in employable age. Since 1989 the workforce according to the data from the last census has decreased by around 350 000 people (6%) and in 2000 the active population (aged 15 to 64) of the country amounted to 5.56 million.

The negative reproduction rate of the labor force in Bulgaria finds expression in the increasing outflow, i.e. persons becoming eligible for old age pension, and in the ever-reducing inflow of the younger generations.

The reduction of labor resources has diverse impacts over the labor market developments. With the increased social burden of supporting the population in post-retirement age and the restricted demographic reproduction capacities of the labor force, the need for active utilization of the population in active age increases.

A major challenge before the country in a long-term perspective is to increase the labor force participation of the population.

The ageing population has a negative impact over the age structure of the workforce, namely in the form of reduction of the relative share of the young generations and increase in the share of the older population.

While in 1990 the relative share of the young people is 20.1%, and the share of individuals over 65 is 13.4% of the entire population, in 1995 these numbers are respectively 17.7% and 15.2%. Through 31.12.2002 the relative share of the young people aged up to 14 is 16%, and the generations in employable age represent 62% of the entire population. The reason for the increase in the population in employable age is the amendment to the legal requirements and increasing the retirement age.

The population in post-active age dropped by 43 thousand in 2002 in comparison to 2001. This is due to both the natural movement in this group and to the fact that half of the men who turned 61 years of age and women who turned 56 were excluded from it.

Among the population in active age there is a constant trend of reduction. Compared to 2001 the reduction is by some 41 thousand and at the end of 2002 it amounts to 1 247 thousand people.

Projections based on the census indicate that by 2012 the number of children below 15 will drop by half. Meanwhile the share of the age groups over 60 will increase significantly. The latter represent 22.5% of the population in 2001. According to the demographic projections, in 2007 people aged between 55 and 64 will form 20% of the labor force of the country. The ageing workforce and the restricted demographic capacities for its renewal combined with a labor market that is characterized by a comparatively high share of discouraged individuals, dynamic changes of the requirements to the professional qualifications and skills bring to the fore the issue of enhancing the potential and the life-long learning of the workforce.

In the period 2003 - 2007 80% of the individuals in active age in Bulgaria will be “old” labor market participants. The average annual new entrants will be 2.3%, i.e. approximately 130 thousand people on average with up-to-date knowledge and skills in the area of the modern information technologies and production will join the labor force annually. The other part of the economically active population – the predominant one - will have to update and enhance their qualifications in accordance with the labor market requirements.

Similar to the constant reduction of the population, the labor force has also experienced constant decline for the period 1993-2000. Besides the demographic causes, the unfavorable economic environment and the postponed restructuring also play a role in this. The largest drops were registered in 1994 (-4.4%) and in 1999 (-3.5%). The number of workforce aged between 15 and 64 dropped from 3315.0 thousand in 2001 to 3297.5 thousand in 2002. In 2003 this trend persists, and in the first half of the year the workforce was reduced to 3219.3 thousand, i.e. around 77 thousand less than the same period last year.


The following features characterize the workforce structure (people aged 15-64):
• Gender structure. The relative share of the male part of the workforce is larger than the female.

• Age structure. The largest relative share in the age structure of the workforce belongs to the group aged between 35 and 44 - 27.3% followed by the group 45-54 - 27.0% and the group 25-34 – 25.8%. The relative share of young people aged between 15 and 24 in 2002 is 10.1%, and the share of the age group 55-64 is 9.1%.
• Structure by Regions of planning: There are great differences between the separate regions of planning resulting from the influence of the demographic and economic factors. Highest is the share of the workforce in the Southwestern region, and lowest – in the Northwestern region (see Chart 2 of the Appendix).

Over the past ten years of economic and social transformation there has been a decline in the labor force participation of the population. According to data from the Labor Force Survey of the NSI the labor force participation ratio of the population aged between 15 and 64 dropped from 66.5% in 1993 to 60.1% in 2000. In 2001 and 2002 there was a slight increase of the labor force participation and the ratio reached 61.2%. The reported figures are way below the average level for the EU where in 2001 the labor force participation indicator is 69.2% . The reduced labor force participation may be accounted for by the effect of the negative demographic trends, as well as by the influence of the economic factors such as large-scale job destruction, insufficient job-creation and existence of a gray economic sector in the country.

Data for the labor force participation by gender indicates an interesting trend that is different from the trends in the EU. In 2001 there was an increase in the participation of women in the workforce and it reached the level of 58.0%, which is very close to the average for the European Union – 60.2%. Meanwhile the labor force participation of men continues to decline and in 2001 its level is 64% compared to 78.1% in the EU member countries. In 2002 the labor force participation of men is 65.3%, and of women - 57.2%.
When undertaking measures for stimulating the labor force participation it should be kept in mind that a significant part (12-13%) of the persons outside the workforce are the so-called discouraged people or part of the labor reserve. Data from the National Statistical Institute shows that in 2002 their number amounted to 401 200 (average annual data). A reason for concern is the fact that a large part of these people are in the age group 15-24.

1.2.2. Education and training structure of the workforce


Majority among the workforce are the people with high-school education (incl. polytechnic, specialized and high school education) – 55.7%. Out of the total workforce, 23.4% have higher education (incl. degrees of specialist, bachelor, and master); 20.9% have secondary and lower education. In 2003 there has been a certain improvement in the educational structure of the workforce. Compared to the first quarter of 2002 the group of people with higher educational degree has increased slightly in number, and there has been a decline in the share of all other educational level groups.

Currently the level of vocational training of the workforce, especially of the unemployed, does not correspond to the market demands. The level of vocational training of the long-term unemployed is low. There is a very serious problem related to the loss of skills of the long-term unemployed, especially among the older age groups.

There is a deficit in training in the modern basic and key skills. There are skill gaps in the new types of professions, especially in the area of advanced and new technologies in production and services, modern technologies in agriculture, management and marketing.

The practical training of students in the educational system currently takes place predominantly in the school workshops and laboratories of the specialized vocational training schools and the vocational high-schools or workplaces in some enterprises especially equipped for this purpose. The old equipment for practical training in the schools and the lack of resources to invest in new equipment restricts and hampers the introduction of education in new professional areas and restricts the capacity of the educational system to become more flexible and adapt to the market demands.

Over the last decade there has been an abrupt rise in the number of university students.

The extension of the network of private schools and universities results in enhancing the capacity for more flexible adaptation of the educational system to the employer demands and requirements.

The school dropouts have always been a problem when dealing with students from ethnic minority groups. The Ministry of Education and Science endorsed statutory financial incentives for the socially disadvantage families, however they proved to be insufficient for overcoming this issue.

Still the vocational training does not fully correspond to the labor market demands. There is a discrepancy between the vocations studied and the vocational training system on the one hand, and the actual labor market demands, on the other .

1.2.3. Employment dynamics, structure and trends in general and by sectors.

The decline in employment in Bulgaria exceeds by far the decline in the other transition economies, even if controlling for decline rate in workforce participation in the other countries. In Bulgaria a 1% drop of the GDP resulted in approximately 9% employment reduction for the period 1990-1993, while in the other Central and East European countries the percentage was 6% . The strong dependence of employment on the economic changes may be partially accounted for by the lack of stabilization factors that in other countries managed to restrict the decline of employment in the initial period of the reforms. Another phenomenon adding up to this is the need to reduce the over-employment that was a legacy of the previous economic system.

During the first half of 2003 the average annual number of employed (aged 15-64, data from the LFS, National Statistical Institute) is 2 742.4 thousand, i.e. 51.5 thousand more workers compared to the same period of last year. The employment rate for the period is 41.8%, i.e. 1.5% higher than the preceding year.

The employment decline in industry persists till the end of the decade, while in some service sectors and in agriculture there is an increase in the number of employed during certain years following 1993. A substantial part of workers who were laid off went back to the rural regions in order to generate agricultural products for their own consumption or established their own micro firms for retail or transportation, oftentimes using their own houses as an office space or their own vehicles for their business activity. Thus they provided employment for themselves and for one or two other individuals, often members of their family. This is how the agricultural, retail and transportation sectors became a buffer that was able to absorb partially the first wave of lay-offs in the economy.

In the mining industry there was a constant reduction in the number of jobs over the last decade. It should be stressed that the decline in employment in this economic sector has been speeding up over the past few years. Besides, the processes of enterprise restructuring continue, incl. closing up mines, which adds up to the relatively high rates of employment reduction. In 2002 compared to 2001, the average annual number of employed in the mining industry decreased by 13.7 %.
Employment in the processing industry has been declining over the past years (by 9.9% in 1999, by 11,1% in 2000 and by 3.9% in 2001), however in 2002 a rise in employment in this sector by 1.5% was registered compared to the preceding year. In all industrial sectors there has been a decline in employment with the exception of the apparel industry, which is among the most dynamically developing sectors with a constantly growing share of the country’s export and a growing number of enterprises, the majority of which are newly established. In some sectors, such as the chemical industry, the production of motor vehicles, etc. the decline in employment is linked to the shrinking production. In other sectors, however, such as the production of coke and petrol products, machine building, etc. the decrease in the number of jobs is related to the quickened privatization processes and the related optimization of the existent employment on behalf of the new private owners.

In 2002 the highest reported rise in employment was in the construction sector (7.6 %).
The dynamics of employment in the service sector is quite unstable, both for the sector as a whole and for its separate branches. In 1998 and 1999 the number of employed in the services sector rose by respectively 1.1% and 2.9%, however, the following years saw a decline of –3.1% and –0.1%. The fluctuation of employment in the sales and transportation sectors affects the dynamics of this indicator greatly. Over the past 4-5 years there has been a constant decline in employment in the education and health care sectors that has to do with the their continuous restructuring as well as with the start of the health reform. However, while in health care there is a rise in employment by 1% in 2002, in the area of education there is a decline of 3% compared to 2001.

Tourism and communications are among the most dynamic branches of the service sector. The number of employed in the hotel and restaurant business has doubled since 1999, and only in 2000 there was a decline of –2.5%. In 2001 their number is bigger than in 1997 and the increase is by some 31%. Employment in communications also registered an almost constant increase during the period up to 2000. In 2002 the positive trend of employment in tourism is preserved. Employment in the hotel and restaurant business rose by 7.3%.
Employment in the private sector registers a constant rise over the whole period of economic changes. The Bulgarian economy consists predominantly of micro and small businesses . In accordance with different analyses of the small and medium-size businesses (SMSB) some 98% of the non-financial sector companies that have active operations in the country and are not supported by the state budget employ annually an average of 50 persons. To a large extent this is due to the nature of sectors into which the majority of the companies in Bulgaria operate. More than half of the active companies in 2000 (50.8%) functioned in the area of trade. Other sectors where a relatively large part of the non-financial and non-budgetary firms in Bulgaria are concentrated are hotels, accommodation and public catering (9.7%), real estate transactions and property lending (8.4%), transport, communications and travel agencies (7.3%). More than 95% of the firms in these sectors are micro-businesses, and the average employment in all companies in the trade sector and hotels, accommodation and public catering businesses is 3 workers per firm.
The significance of SMSB for the status and the dynamics of the Bulgarian economy is by far not as great as it would be if only their relative share in the total number of operating companies were taken into consideration. Despite the fact that pursuant to the Bulgarian classification only around 1% of the operating businesses are large enterprises (with average annual employment rate of more than 100 people), their share in the total employment is 50% (49.4% in 2000), and they generate 70% of the value added in the economy In reality, the dynamics of the Bulgarian economy depends on the small number of large enterprises.

There is a clear dependence between the size of the companies and their performance and the share of their value added in the total of sales. With the increase in the size of the companies there is also an increase of their labor productivity and also a rise in the share of value added in their sales. In other words, by enlarging the size of the enterprises, their effectiveness also increases.

Meanwhile, despite the incentives, there are still difficulties for the small and medium enterprises for reducing the informal employment. It is necessary to continue the process of establishing adequate economic environment for their development that will ensure their effectiveness and sustainability.

There are different estimates of the informal sector in the Bulgarian economy, however the common opinion is that a significant part of the income is concealed in order to minimize or evade taxation and social security payments. Data from the National Social Security Institute indicates that in 2001 social contributions were paid for 2,313 thousand people, while the number of employed in the economy for the same period according to data from the NSI is 2,904 thousand. The relative share of pensioners to the individuals covered for social security in 2001 is 102.5%, while in the developed economies this ratio is below 20%. The large number of individuals without social security coverage, as well as the number of people employed in the gray economy (monitored by the NSI) drastically reduces the possibility for alleviating the tax burden over the labor costs, which in turn restricts the possibilities for the Government to stimulate job creation through its fiscal policy. The measures for mandatory registration of labor contracts in the NSSI endorsed at the beginning of 2003 gave fruit and the number of registered new labor contracts and respectively the revenues to the social security system rose. A total of 1 986 031 labor contracts are registered in the NSSI. The majority of newly registered labor contracts are of people who until recently were employed in the informal sector. The revenues in the social security funds for the period January – September 2003 rose by BGN 324.2 million compared to the same period in 2002.


1.2.4. Dynamics, structure and trends of unemployment


Despite the positive trend of reduction in unemployed labor office registrants that started in 2001 and persisted throughout 2002, unemployment remains the main challenge on the labor market in Bulgaria. According to data from the Employment Agency in 2002 there was a decline of 2% in comparison to 2001, however the number of unemployment registrants remains high - 655 998 people. The registered unemployment rate is 17.7% in 2002 and it is among the highest of the EU membership candidate states. (see chart 4)
In the first 9 months of 2003 the registered unemployment rate declined significantly and was 14.61% on average for the period ended. In September 2003 it reached 12.76%, which is the lowest rate since the end of 1998.

During the second quarter of 2003 unemployed people aged between 15-64, pursuant to the LFS of the NSI, are 456,2 thousand, and the unemployment rate for the same age group is 13.9%.
Over the past 10 years there has been a sustainable trend of unequal distribution of unemployment by socio-demographic groups. Permanently affected by unemployment is the group of young people, people with secondary and lower level of education, the Roma, people with reduced working capacity, and in separate periods of time – women and people aged above 50. Vulnerability has a multi-aspect nature and it finds expression both in higher risks of loosing one’s job and in smaller chances for re-employment and therefore a possibility for falling in the trap of long-term unemployment and exiting the workforce as a result of discouragement.

Firstly, the share of people who have been unemployed for more than two years is increasing. In 2001 this share exceeded 2/3 of all registered unemployed in accordance with data from the Labor Force Survey of the NSI. A large part of these people belong to the ethnic minorities and have no education and qualifications. The enlargement of this group over the past two years and the persistent trend of disparity of the labor market, where supply will exceed significantly demand indicates that for these people the chances of finding a job will remain minimum in the foreseeable future. .

The youth unemployment is also a negative and persistent labor market phenomenon, that requires taking immediate action. In the light of the trends of declining ageing labor force allowing discouragement among the young generation that makes them seek employment in the informal sector or emigrate will result in loosing human resources, and the country may not afford this. Among the factors contributing to the long-term youth unemployment are the low education levels and lack of specialization or vocation among the predominant part of them, the discrepancy between the number of young people and their vocational training and the actual employer demands, as well as the lack of practical experience.

The share of unemployed people over 50 rises significantly. Through the end of 2002 they form 21% of the total number of unemployed labor office registrants.

Despite the lack of systematic data about the situation of the ethnic minority groups on the labor market, separate studies and publications show that there is a certain inequality on the labor market especially with respect to the Roma minority. For instance, according to OECD (2001) the unemployment rate in the Roma municipalities reaches 80% of the active population. Only 10% of the Roma have found employment in crafts traditional for them, and 8.5% own farming land. It should be stressed that the inequality of the ethnic minorities on the labor market may not be accounted for by ethnic intolerance, but rather by the low level of education and qualifications of people from some ethnic groups. Data from the 1992 census shows that only 8% of the Roma have high-school education and 1 to 2% have a university degree, 37% are with secondary education, while for Bulgarians these shares are respectively 54%, 12% and 8%.
In should be stressed that the vulnerable groups (such as the Roma) have in the majority of cases not only one but rather several demographic characteristics that make them socially disadvantaged.

In the publications and materials devoted to the disadvantaged groups on the labor market women are recognized as a risk group. Detailed analyses of data indicate that it is hard to establish whether there are gender gaps only on the basis of the most general indicators for labor force participation and for employment and unemployment. The higher relative share of women in the total number of unemployment registrants reflects moistly the demographic majority of women in the population in employable age. A more significant difference between the two genders is reported on the level of employment ratios. The gender-gaps issues on the labor market are not as grave as in some other countries and even the developed market economies. According to the LFS the average labor force participation rate of men in Bulgaria for 2002 is around 10 percentage points higher than women’s, and the unemployment rate among women is 1.5 percent higher than the male unemployment. The income gaps between men and women in Bulgaria exist, however they are similar to the figures in the EU countries. The average salary of women in Bulgaria is around 72% of the salary of men (for 2000 – 2001), while in other countries such as Austria, Ireland and the UK the gap is much wider. Meanwhile in other countries (France, Sweden) the difference is smaller. The lower average salary of women in Bulgaria results from the fact that they form the majority of the employees in sectors with traditionally low compensation (apparel industry, education, etc.), as well as from the predisposition of employers to prefer men for the better-paid positions. Both with respect to the labor force participation, and employment, the group of men has a higher reserve for improvement of the indicators and their convergence to the levels in the rest of the European countries.


1.2.5. Regional aspects of the labor market development


One of the characteristic features of the labor market over the past ten years has been the persistent trend of significant differences among the separate regions. The strong territorial differentiation may be traced both with respect to the volume and composition of the supplied labor force, and with respect to the demand.

The regional differences find expression in the indicators for all aspects of the labor market – employment, unemployment, labor productivity, education, qualifications and demographic structure of the workforce.

There are great differences among the separate regions of planning with respect to the level of labor force participation of the population which result from the influence of the demographic and economic factors. The difference between the Southwestern region that has the highest labor force participation (See Appendix, Chart 3) and the region with the lowest labor force participation – the Northwest has grown from 4.4 percent in 2001 to 7.5% in 2002.
An essential characteristic feature of employment is the significant gap in the levels of this indicator among the regions of planning. There has been a persistent trend of reporting the highest employment rate - 45.6 % in 2002 in the Southwest region, and the lowest in the Northwest region - 32.9 %. This disparity of the regional labor markets is a result of the inherited structure of the local economy that was affected by the restructuring processes, and the different opportunities to develop small and medium size businesses in the separate regions.

In Bulgaria there has been a constant uneven distribution of unemployment by regions and municipalities. The disproportionate economic development of the separate regions resulting from the influence of different socio-demographic and economic factors, from the inherited social, economic and territorial structure, from the economic development in the transition period causes the big differences in unemployment rates. There is a great disparity among the separate regions of planning that may be accounted for by the influence of the demographic and economic factors. In 2002 the lowest unemployment rate was reported in the Southwest region (12.8 %) and the highest in the Northwest region (26.5 %). The data indicates that the unemployment rate gaps among the regions have been extending in the past few years.

With respect to unemployment rate there are significant differences not only on the level of the regions of planning, but also on municipality level where the variation in the unemployment rates for 2002 is even higher (data from the administrative statistics of the Employment Agency). There are 117 municipalities where the unemployment is 50% higher than the average for the country, unemployment rate in these municipalities is over 26.56%. The highest unemployment rate for 2002 was reported in the municipalities Nicola Kozlevo (66.77%), Samuil (58.53%) and Dimovo (55.35%), and the lowest in the municipalities of the city of Sofia.

There is also a gap among the separate regions along the parameter indicating the registration duration (again data from the Employment Agency). In the districts with highest unemployment rate the relative share of long-term unemployed is 7-8 percentage points higher than the average for the country. In the districts with lowest unemployment rates the relative share of long-term unemployed is 10 points lower than the average for the country.

In the group of unemployed aged below 29 there is also uneven distribution among the regions. In the districts with low unemployment rates (Sofia, Gabrovo and Blagoevgrad), the relative share of the unemployed is 5-10 points lower than the average for the country. The highest rates are reported for the districts Sliven, Stara Zagora, Yambol, Haskovo and Varna.


1.3. Employment policy


The active and passive measures and programs introduced in Bulgaria are in essence correspondent to the ones applied in the developed economies. They are targeted at the registered unemployed, the employed and employers.

The employment policy is harmonized with the requirements for compliance with the European and international standards, reflected in the European Employment Strategy and its priorities, the recommendations of the International Labor Organization (ILO), the Organization for Economic Cooperation and Development (OECD) and other international organizations. For the purpose of determining the priorities of the employment policy, programs and documents developed by the Bulgarian government are taken into consideration together with the National Plan for Economic Development, the directions of the Strategy for Human Resource Development (2000-2006), etc. Current monitoring and specialized studies of the labor market are performed.

In its regulatory framework the Republic of Bulgaria has performed the necessary preparation for transposing to the aquis communautaire. Fundamental documents for the employment policy in short-term and mid-term perspective are the Guidelines of the European Employment Strategy and the EU directives on equal treatment, vocational training and other employment-related areas. In April 2002 Negotiation Chapter 13 on Social Policy and Employment was temporarily closed, and June saw the closing of Chapter 2 on Free Movement of People.

The Employment promotion legislation is also being developed.

The Employment Promotion Act effected as of 01.01.2002 (amended March 2003) settles the public relations for promoting and supporting employment, career information and consultations, vocational training for unemployed and employed people, job matching for Bulgarians willing to work abroad and for Bulgarians and foreigners in Bulgaria.

The contents of the labor market policies is brought in compliance with the New Social Policy Strategy 2002-2005 . The plans are to develop an active social policy that influences the causes rather than the effects and that will help create a fair social order.

A differentiated approach is applied to the separate social groups offering different opportunities for them for the resolution of their problems in compliance with the requirement for social costs efficiency.

The active labor market policies are funded predominantly from the state budget. This ensures that the employment programs and employability enhancing programs will be implemented with a guaranteed regular funding.

Despite the harmonization of the policies and the labor legislation with the EU and international requirements, the labor market problems are far from solved. The active policies coverage of the unemployed remains low.

A number of new programs such as From Social Assistance to Employment, Enhancing Employability and Promoting Entrepreneurship among the Young, Assistance for Retirement, Labor Market Initiatives, Employment Program for People with Disabilities, Program for Employment of Teachers for Training Children with Disabilities, Program for Farmers with a pilot phase in the district of Vidin, etc. started in 2002 and 2003.

The program for assisting the small and new businesses Micro-lending Guarantee Fund showed good results. In addition the Corporate Income Tax Act establishes incentives in the form of remitting the profit tax to employers who invest in municipalities with high unemployment rate.

The vocational training of labor market participants as a basic instrument for improving employability is organized by the Employment Agency through procedures of assigning the training to adequate training providers and in constant monitoring of the quality of training. Since the beginning of 2000 the National Agency for Vocational Education and Training (NOVET) has been licensing vocational training centers and monitoring the quality of training provided by them.

Actions for extending the range and improving the quality of labor market services are being taken in the attempt to make them more systematic, timely, accessible, efficient and effective. In the labor market management efforts are taken to better harmonize the policies on a national, regional and municipal level and for creating favorable conditions for the adequate participation of the social partners in their design and implementation.

For the unemployed people the labor office registration and the services offered by these offices are currently considered the main opportunity for seeking and finding employment. The private labor exchanges offer a restricted number of paid job matching services. Until now no surveys of the structure and effectiveness of the job-matching services have been made.



National Employment Action Plan

Pursuant to the Employment Promotion Act on an annual basis the Council of Ministers endorses a National Employment Action Plan funded by the state budget, the PHARE program and other sources. The plan is gaining importance and becoming a major tool of the employment policy – it establishes the objectives and mechanisms for the implementation of the national employment and human resource policies as well as concrete projects and programs to be implemented within the respective year.
The National Employment Action Plan will be the operational tool on an annual basis for the concrete actions and measures to attain the objectives laid down in the Strategy.

After Bulgaria’s accession to the EU in 2007 the country will take an active part in the implementation of the European Employment Strategy. The National Employment Action Plan will be submitted to the EC and approved by it.


1.4. Labor market institutional capacity

1.4.1. Labor market institutions


The government employment policy of the Republic of Bulgaria is determined by the Council of Ministers.

The Ministry of Labor and Social Policy designs, implements and coordinates the government policy in the area of employment and vocational training of unemployed and employed.

The Employment Agency implements the government labor market policy. The National Employment Service (Employment Agency) was established in 1989 and has been enhancing its capacity constantly with the technical assistance of the EU member countries.

The government implements the employment policy in cooperation and coordination with the nationally represented employer organizations and trade unions, as well as with representatives of other non-profit legal entities. This allows the partners to influence the decision making process in the labor market area.

A major principle in the labor market policy design and implementation is partnership among the institutions, social partners and non-government organizations. In this relation there are a number of tripartite bodies acting on a national level that are regulated by the Employment Promotion Act, including:

National Tripartite Council – with its permanent committees on: income and standard of living; social impact of the restructuring, privatization and the budget policy.

National Employment Promotion Council under the Minister of Labor and Social Policy – a permanent consultative body for cooperation and consultations in the process of designing the employment policies. The Council discusses and comes out with positions on the design and implementation of employment policies as well as on the National Employment Action Plan. It proposes to the Ministry of Labor and Social Policy the development of draft regulatory acts, measures and programs for promoting employment.

Council to the Executive Director of the Employment Agency – a tripartite consultative body advising the Executive Director in the decision-making process and monitoring the Employment Agency’s activities related to implementation of the employment promotion policy, discussing the main trends, the plan and report of the operations of the Employment Agency, discussing the effective implementation of programs and measures.

Permanent and Interim Employment Committees under the District Council for Regional Development - for the purpose of implementing the provisions to art. 9 of the Employment Promotion Act through the participation of the district administrations, the local government bodies, regional offices of the ministries, organizations and the social partners. These Committees determine, organize and control the implementation of the government policy on employment and vocational training on a regional level.

Tripartite Cooperation Councils under the regional offices of the Employment Agency - they monitor the implementation of programs and measures, exert control for compliance with the provisions for the selection of the respective programs and measures; discuss which of the programs and measures should get priority funding.
National Consultative Council on Vocational Training of the Workforce and a Consultative Committee on Equal Opportunities for Men and Women and for the Vulnerable Groups on the Labor Market is established under the Minister of Labor and Social Policy.

The Employment Agency and its regional offices are the bodies responsible for ensuring the quality of services for the job seekers.

Employment services are provided also by natural and legal entities registered pursuant to the Bulgarian legislation. In accordance with the legal requirements the job matching services provided by natural and legal persons may be offered against payment of a fee.


1.4.2. Capacity for providing employment services


Due to the restricted resources of the former Fund for Vocational Training and Unemployment the administrative costs of the Employment Agency and the costs for servicing the jobseekers are lowered. In 2000, the relative shares of the employment services and administrative costs compared to the GDP in Bulgaria were 0.09%, while in Austria they amounted to 0.14%; in Belgium – 0.14%; in Canada - 0.17%; Denmark - 0.12%; France - 0.18%; Germany – 0.23%; the Netherlands – 0.26%; UK – 0.13%; Sweden – 0.23%. The small financial resources of the administrative system of the labor market allow it to survive, however it does not ensure its substantial development.

A national system for automatic management and IT servicing of the labor market has not yet been developed.

With the current insufficient IT resources, there are restricted possibilities for applying up-to-date forms of organization of services and making them more intensive. It is impossible in practice to provide a large-scale direct access of unemployed people to IT equipment, to self-servicing of the job seekers and to the employment e-services. The funds available for investments are expended predominantly for the most urgent capital repairs.

The quality improvement of the services requires significant enhancement of the administrative capacity and organizational procedures.

A significant problem currently is the lack of a nation-wide system for studying the employers’ demands for workforce and skills that may serve the purposes of both the vocational training of unemployed and the anticipatory training in the system of high-school and university education, as well as the training of the employed with respect to the expected changes in the skills demand.


1.4.3. Labor market monitoring


Labor market monitoring is performed in the following manners:

• On-going monitoring. Within the Employment Agency the monitoring for effectiveness of the employment services is performed within the framework of the internal monitoring. It encompasses the monthly reporting of the detailed indicators of the labor market demand and supply and the progress of the effective policies (measures, programs, activities), as well as the unemployment registration.
The system of indicators developed and used following 1992 has been optimized constantly. In its present form it provides good opportunities for analysis of the current labor market situation. The main indicators monitored by the Employment Agency are the number of registered unemployed in total and by types of specialities, by age and gender, by consecutive number and duration of the registration, by sectors from which employees have been laid off, where job openings are announced, jobs filled and people appointed.

The monthly and annual monitoring of the employment generation activities is performed by specialized units of the Employment Agency and the Ministry of Labor and Social Policy.

• Specialized monitoring and evaluation of projects and programs (predominantly with international funding and within the PHARE program), concrete studies (ex-ante and ex-post studies and questionnaires).
• System for gross and net programs and measures effect evaluation. The working group for the implementation and monitoring of the labor market programs and measures set up in 1997 under the National Employment Service performed during the same year the first monitoring and evaluation of the labor market programs and measures. In 1999 the Netherlands Economic Institute (NEI) implemented the project Evaluation of the Net Impact of the Active Labor Market Policies .

The main results of the survey indicate that all analyzed programs have positive net impact – participation in them improved the chances that the unemployed stand on the primary labor market.


Net impact by programs

Program Net impact

Temporary employment program 0.025*
Training and retraining with a guaranteed workplace 0.111***
Training and retraining without a guaranteed workplace 0.103***
Subsidized employment 0.387***
Employment generation companies 0.109***
Individual employment 0.427***

The net impact assessment represents the degree to which the measures and programs participants find employment easier on the primary labor market as of the time of the survey from the respective individuals in the control group.

Within the framework of general monitoring of the labor market activities not enough attention is paid to the regional differences. There is no systematic follow-up. It is necessary to seek the opinion of the social partners regarding the programs and measures effect, especially when the side effects are measured, incl. through their participation in the monitoring of activities on a nation-wide scope.

1.5. Major challenges on the labor market


The analysis of the current situation, trends and potentials for the labor market development allows outlining of several major challenges that will define the development of the social policy, the employment policy and the human resource development policy.
Firstly, the country is facing a group of problems that require joining efforts and resources for their resolution. Among these problems are:

• Low labor force participation levels;
• Large number of unemployed;

• Large number of discouraged people;

• Disadvantaged groups on the labor market;
• Significant regional differences with respect to employment and unemployment;
• Restricted labor demand, significant over supply of workforce;

• Unregulated employment;
• Skill gaps;
• Insufficient vocational training of the employed persons with respect to ensuring adaptability of the workforce to the changes in technologies and activities.
In addition some more general challenges are worth mentioning that are expected to influence the labor market development in a long-term perspective. These are:

• Unfavorable demographic trends. Their immediate impact will be the reduction in the number of the workforce and its ageing. This will have a negative impact over the possibilities for a sustainable economic growth and will create a negative challenge for the social security and pension insurance system in the country. In this aspect the increased labor market participation of the population is becoming a strategic priority for the labor market development.

• The Bulgarian EU integration and orientation towards knowledge based society. This trend will predetermine the dimensions and the major priorities of the structural reform in Bulgaria and will stress the need to actively utilize information technologies and high-tech production processes and services in the economy. In this light the human resource development and predominantly bringing the educational and vocational training structure of the workforce in compliance with the requirements of the knowledge-based economy will be a strategic priority of the labor market development.

• Changing the nature of working life. The development of the knowledge-based economy presupposes a constant enhancement of the professional knowledge and skills. This requires reconsidering the conditions the organization of labor and the possibilities for reconciliation of life-long learning and work as well as work and family life. The new information technologies require new quality of labor – better labor conditions, increased safety, and greater social security. Therefore the establishment and development of a legislative and institutional framework ensuring the optimal combination of flexibility and security of labor in response to the changed working life nature is becoming a priority in the labor market development.



2. STRATEGIC GOALS, SUB-GOALS AND DIMENSIONS OF THE EMPLOYMENT STRATEGY


Basic document for the development of the Employment Strategy in Bulgaria is the European Employment Strategy (EES) that sets the need for growth and a macroeconomic policy oriented towards sustainability and structural reforms for improving the potential for economic growth in Europe.

The objective of the employment strategy of Bulgaria is formulated on the basis of the three main goals of the EES: full employment, quality and good performance of work, cohesive and inclusive labor market.
The actions in the employment strategy are determined in accordance with the ten new dimensions of the EES as follows:

• Job creation and entrepreneurship;

• Promoting labor market adaptability and mobility;
• Promoting the human resource development and life-long learning;

• Increasing job creation and promoting active ageing;

• Gender equality;

• Promoting integration and fighting labor market discrimination against disadvantaged people;
• Making work more attractive and making work pay;

• Transforming undeclared labor into formal employment;

• Actions to reduce the regional differences in employment;
• Active and preventive measures for the unemployed and persons who are outside the labor force.


Until 2010 the development of the EU countries should ensure:

• 70% employment rate;
• Employment rate for women at 60% in 2010 and employment rate among older workers (aged 55 – 64) – 50% for 2010.
• Provision of new standards to the unemployed young people before 6 months of unemployment elapse, and for the older – within 12 months. The new standards are in the form of vocational training and retraining, internship, employment or another employment measure that is combined, if possible, with assistance for seeking job;
• More than 10 percent participation of the population aged 25-64 in different forms of life-long learning;
• Reduction of school drop-outs to less than 10 percent;


The planned goals and activities in the Employment Strategy are in compliance with the Global Employment Strategy developed by the ILO as follows:
• Turning employment into a core issue for each economic and social policy;
• Taking into consideration the enhancement of workforce performance especially of the working poor people;

• Providing resources and new investments in ensuring social sustainability, good industrial relations and compliance with the major work standards.

• Promoting the creation of jobs with fair labor conditions as a factor for increasing performance;

• Promoting entrepreneurship and private investments;
• Promoting adaptability and employability;
• Overcoming labor force discrimination;
• Developing a new macro-economic framework for employment promotion.


The Employment Strategy of the Republic of Bulgaria was developed also on the basis of the following documents:

Human Resource Development Strategy 2000-2006 (2000). This Strategy outlines four different perspectives of the issue – finding employment, vocational education and training, health care and culture.

A Joint Report on Assessing the Employment Priorities in the Republic of Bulgaria (2002). This document consists of a set of goals of the employment and labor market policy coordinated bilaterally that are necessary for the progress in transforming Bulgaria’s labor market, for adapting the employment system for the purpose of implementing the European Employment Strategy in the process of Bulgaria’s preparation for its EU accession. The overview provides the Government of Bulgaria and the European Commission with information and assessment of the main issues of human resource and labor market development.

National Plan for Economic Development – for the period 2000-2006 (NPED) – covers the long-term perspective of the economic development in Bulgaria. It introduces a set of modern planning and program definition approaches. The document presents the vision for the future development of the country that is compliant with the national priorities and the progress in the EU negotiations. This document is the basis for a transition to a multi-year programming and utilization of the pre-accession funds.

Bulgarian Government Program “People Are Bulgaria’s Wealth” (2001). The Social Policy section of the program formulates the main priorities in the areas of labor market, social assistance and social services, income policy and standard of living, public social security policy and outlines the concrete actions in short-term, mid-term and long-term perspective (until the end of the Government’s term in office).
The new Social Policy Strategy of the Bulgarian Government (2002) – The main message of the strategy in the area of social policy is “Better order and social justice”. The strategy is part of the Government’s integrated approach for implementing reforms in the economy and the public life. The strategy takes into consideration both the national experience in the social area and the trends, recommendations and directions of the EC and the Council of Europe in this area. The document develops a new approach based on a new concept for the relation between the separate policies.


VISION OF THE EMPLOYMENT STRATEGY

People are Bulgaria’s wealth, they have the right to a worthy existence and adequate participation in the public life. These rights may be ensured through providing employment that allows complete utilization of the skills and capacities of the individual. The economic stability and economic growth do not automatically result in proportionate growth in employment. The performance growth is the main source of significant, non-inflation based increase of the living standard. The high unemployment rate exerts pressure over the labor market with respect to restricting the labor remuneration, incomplete utilization of the workforce, deterioration of the working conditions. There are some groups on the labor market with extremely low competitiveness and restricted access to jobs. The government, the business and civil organizations are responsible before the individual to mobilize all resources in the country, to create a favorable economic environment and to provide employment.


The strategy’s vision is defined as follows: Providing conditions and opportunities to each individual in active age for freely selected and productive employment.

The Employment Strategy is developed on the basis of the following principles:
Legal compliance – including actions compliant with the Bulgarian Constitution, laws and regulations;
Reliability - taking actions leading to significant tangible positive results;

Preventive measures – taking actions to eliminate the causes of the negative phenomena;
Sustainable results – the outcomes should be sustainable with long-term impact;

Effectiveness – the programs and measures are implemented following an analysis of the needs, harmonization and adequacy of the goals, monitoring and evaluation of the results;

Efficiency – cost-effectiveness, favorable ratio of cost and benefits;
Coherence – the social area management should provide internal logic and interrelatedness of the developed policies, political commitments and responsibilities on behalf of the institutions in the design and implementation of the social policy.

2.1. Medium-term and long-term objectives of the Employment strategy

The main objectives outlined in medium-term perspective, within the period from the year 2004 to the beginning of the year 2007 , are increasing employment and limiting unemployment.

Based on the analysis of the status and tendencies in labor market development that was carried out but above all in


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